devoish (96.02)

Corn Prices Discussion, Ethanol Subsidies vs Global Warming.

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The current bullish outlook for record high grain prices is primarily the result of actions by the U.S. Congress. The tax legislation enacted by Congress in December to extend the Bush tax cuts included an amendment by Senator Grassley of Iowa to continue federal subsidies for ethanol i.e. the 45 cent per gallon blenders' tax credit for gasoline companies which buy and use ethanol. The tax bill also extended the 54 cent tariff on ethanol imports from Brazil. The end result of these extensions is more demand for ethanol and no competition from Brazil.

Approximately 41% of this year's entire U.S. corn crop is being diverted to the production of fuel ethanol thanks to legislation passed by Congress. On the Global stage 50% of the Brazilian sugar cane crop is being used to produce fuel ethanol. It is no wonder the price of agricultural commodities and the price of food are headed higher.

As of 1/17/11, corn was trading for $6.4875/bushel. This price will likely have to head higher in order to convince enough farmers to switch their plantings to corn, which will be necessary to meet the current demand for it for ethanol production. The challenge, of course, is that given the record demand for soybeans from China, soybeans cannot afford to give up millions acres to corn. As corn trades higher, so will soybeans.

The experts who I have spoken with fully expect corn to trade over $7 a bushel within the next 60 days. They won't rule out seeing a real blow out in prices this spring whereby the price of corn exceeds $8. Soybean prices are expected to trade higher in tandem with corn which would add another $1 or more to soybean prices.

( I included these two for an example of the ABC's of bashing Government. (Always Blame Congress)

As a result of government mandates and subsidies, the production of ethanol now consumers a staggering 41% of the U.S. corn crop. Ethanol increases the demand for corn, which in turn drives up prices in a world with a finite amount of land. The impact is not just limited to corn prices. As corn prices increase, more land is shifted towards planting it. That leaves less land for other commodities. This means that food prices are headed higher, perhaps significantly higher for consumers. That's the bad news.

1/30/2011, devoish - Last year I went long - only in CAPS - JJG and JJA not because of the influence of biofuels on crop prices, but because of the influence of global warming induced weather extremes on crop production. Austraila was crushed by drought and then trashed by floods, Russia was destroyed by heat and drought, Argentina - drought, Pakistan - flooding. All of that weather could be just weather, just as four major hurricanes hitting Florida could be just weather. But the more "just weather" events there are, whether they are record precipitation, highest ever temps, or number of hurricanes, the more likely global warming is coming to pass. Whether you believe in global warming or not, it is the extreme weather events, + increased food demand + increased oil costs = higher food prices. Ethanol has kept costs down.

Regards,

Steven (who has since learned to stay away from etf's)

Dec 23, 2011, greencarreports.

When the U.S. Congress adjourned for the holidays on Friday, December 23, its departure sealed the fate of subsidized ethanol production.

During its session, the Congress did not renew a tax break for U.S. production of corn-based ethanol that had become increasingly unpopular across a wide area of the political spectrum.

The tax credit amounted to 45 cents per gallon of ethanol that was blended into gasoline. It had been in place since 1980.

Todays corn price is $7.12/bushel. The price is driven by market speculation concerning crop failures due to heat and drought in the US corn belt, not a government ethanol subsidy.

The Earth Policy Institute says that 40% of U.S. corn crops in 2011 were turned into fuel ethanol.

“At the current production rate of about 2.8 gallon of ethanol per bushel of corn, ethanol’s demand for corn will be fairly flat in the 5 billion bushels per year area until the demand increases,” said Fordham.

And “ethanol demand will only increase by expansion of the E10 or E15, or a sustained drive by energy, manufacturing of political entities to expand the use of E85, or from increased exports,” he said. E10, E15 and E85 represent a fuel blend of 10%, 15% and 85% ethanol, respectively, in gasoline.

I read that as flat growth, not less demand.

Under the Energy Independence and Security Act of 2007, the RFS program was expanded, requiring that 36 billion gallons of renewable fuel be blended into transportation fuel by 2022. Read more about the RFS on the U.S. EPA site.

“So the ethanol industry has no more U.S. tax incentive, but does have a mandated market,” said Robert Gough, director of renewable fuels at OPIS.

And despite the loss of the tax credit, “ethanol’s relative cheap price compared to gasoline for much of this year has actually led to an increase in ethanol blending,” he said.

That part seems like increased demand.

So ethanol growth has stayed the same or possibly grown a little. The laws of supply and demand seem to be effecting corn prices more than amything.

The mandate for blending also helps destroy our environment. So we have 40% of our corn crop going to a fuel that pollutes more than the fuel it's replacing.

Question: Do you fill your car’s tank with gasoline that is part cellulosic ethanol, an environment-friendly distillate of wood chips, corn cobs, and switch grass? Let me answer for you: No, you don’t. You couldn’t if you wanted to. Petroleum products blended with cellulosic ethanol aren’t commercially available, because the technology for mass-producing cellulosic ethanol hasn’t been perfected. None of which has stopped the Environmental Protection Agency from imposing hefty yearly fines on oil refiners. According to the The New York Times, in 2011 automotive fuel producers were assessed $6.8 million in penalties. That amount is expected to climb dramatically this year. Guess who ends up footing the bill for the difference?

This has got to be the ultimate example of government bureaucracy gone mad. How did it happen? Blame can be divided over the last two administrations. In his 2006 State of the Union Address, George W. Bush promised to “fund additional research in cutting-edge methods of producing ethanol, not just from corn, but from wood chips and stalks or switch grass.” The following year, Bush signed into law the Energy Independence and Security Act of 2007 (EISA), which mandates that oil refiners begin blending cellulosic ethanol into their gasoline and diesel products.

The “advanced biofuel contribution” under the law was to begin in 2009 at 0.6 billion gallons of cellulosic biomass and rise incrementally, first to 1.35 billion gallons in 2011, then to 2 billion gallons in 2012, and so on. By 2022, 21 billion gallons of fuel pumped into the nation’s cars and trucks was to be cellulosic ethanol.

The law further stipulated that if refiners failed to comply with the EPA mandate, they would pay a penalty.

The only problem with this arrangement was that the grant recipients responsible for coming up with Bush’s “cutting-edge methods of producing ethanol … from wood chips and stalks or switch grass” instead came up empty. In a 2011 report, theNational Academy of Sciences concluded that “currently, no commercially viable bio-refineries exist for converting cellulosic biomass to fuel.” The report also noted that the renewable fuel standard “may be an ineffective policy for reducing global greenhouse gas emissions,” since the full life cycle of the fuel, including its transport, could lead to higher emissions than conventional petroleum.

Undaunted, the Obama administration has forged blindly ahead, continuing the elusive search for a technology that will produce cellulosic biomass—at taxpayers’ expense. Since thanks to the EPA mandate we are already paying more at the pump, the American people are truly getting nothing for something.

The most noticable part of your reply, is your complete and utter failure to point out any of this when Deej wrote his original post, but instead cheerleaded along with the opportunity to Always Blame Congress.

However, on the surface, fining a refiner for not blending in a product that does not exist is wrong. On the other hand, if I knew I could just get fines waived, I would have no incentive to make a legitimate effort to comply with any regulations.

The United States Congress is responsible to provide for the common defense, promote the general welfare, and secure the blessings of liberty to its citizens and their children. Under no circumstances could our current dependence upon fossil fuels be considered fulfilling its charge. Or as grandma correctly advises; "don't put all your eggs in one basket".

Congress is correct to influence markets to move toward a greater variety of renewable and sustainable fuel sources. Their pussyfooting around is the real mistake.

The fine for not blending amounts to a tax applied on all refiners, no favoritism and is ultimately paud at the pump by consumers of gasoline. It incentivises conservation of fuel and that is a good thing especially with the onset of Co2 induced global warming.

Of course, if it was up to me I'd honor the stupidity of worshiping markets that haven't gotten it done for us, by quickly slapping a .50cent tax on gasoline and use that money to provide funding for solar panels, windmills and electric cars, with 10% used to provide loan backing for the next Solyndra failure and all the Gov't backed success stories.

Year two would be $1.00

The incentive to use less fuel would bring gasoline consumption down, reducing the impact of the tax, while limiting opportunity for speculators to bleed us dry and give us nothing but grief in return.

.50cents a gallon would buy a lot of people freedom from electric bills, gasoline shortages, and price disruptions. And every year after that more and more people would be freed from the tyranny of oil dependence.

2 million electric cars could be on the road in the first year. Think of the lowered demand for fuel that would mean, and with it lower prices as supply outstrips demand. The tax would hurt less, and we would be getting our future back for our money.

The second year that could be 4 million. Lets face it, there is nothing wrong with cheaper and cleaner transportation if you are like me, and gasoline is simply a drain on the budget.

U.S. Ethanol Output Drops to Lowest Level in Two YearsUSAgNet - 07/13/2012

U.S. ethanol output plunged to its lowest level in nearly two years last week as soaring corn prices pushed many biofuel refineries into the red.

At least three U.S. ethanol plants -- two in Nebraska and one in Indiana -- are idling as the highest corn prices in more than a year squeeze margins in the worst spell since a string of bankruptcies in 2007 and 2008.

Ethanol production last week fell 4 percent, or 36,000 barrels per day to 821,000 bpd, the lowest since the week ending July 23, 2010, according to the Energy Information Administration.

Stocks of the biofuel fell 761,000 barrels to 19.53 million barrels, the lowest since January.

"It's high corn prices and not-so-high ethanol prices," said Wally Tyner, an energy economist at Purdue University. "If we continue to have drought and corn continues to go up, there will be others that suspend production."

Ethanol plants are losing money, with the average margin in Illinois at a negative 32 cents per gallon of fuel produced, according to Reuters data. And margins could get worse, with the existing corn stockpile dwindling and the conditions of the developing crop the worst in 24 years due to sizzling temperatures and drought conditions in the U.S. Midwest.